Fall in inflation could lead to interest rate cut

A further cut in interest
rates may be on the horizon after the underlying rate of inflation fell by more
than expected.

Industry leaders believe
that the Bank of England has room to manoeuvre because pressure from inflation
is weaker.

July’s inflation rate,
which excludes mortgage interest payments, fell by 0.2 per cent to 2.2 per cent
as a result of lower food prices, according to the Office for National
Statistics.

The figure is lower than
Chancellor Gordon Brown’s 2.5 per cent target and below analysts’ forecasts of
a 0.1 per cent drop in the underlying rate.

A CBI spokesman welcomed
the drop in underlying inflation and commented, “The door is definitely open
for further rate cuts.”

Increasing signs that the manufacturing sector is heading into
recession has also increased pressure on the Bank of England to sanction a second successive interest rate cut
next month.

Ian Fletcher, chief
economist at the British Chambers of Commerce, claimed that slowing world
growth was a bigger risk to the UK economy than inflation and called for the Bank
of England to cut interest rates further.